49036 Federal Register / Vol. 72, No. 165 / Monday, August 27, 2007 / Notices 

6 15 U.S.C. 78q–1(b)(3)(F). 

7 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 8 17 CFR 200.30–3(a)(12). 

CDBOs in the case of certain corporate 

events affecting the reference 

obligations, and OCC proposes simply 

to defer to the rules and to the 

determinations of the listing exchange 

pursuant to its rules. Accordingly, as in 

the case of CDOs, OCC will have no 

responsibility for adjustment 

determinations with respect to CDBOs. 

Similarly, Section 4 provides that the 

listing exchange for a class of CDBOs 

will have responsibility for determining 

the occurrence of a credit event that will 

result in the automatic exercise of the 

CDBOs of that class with respect to a 

particular reference entity. The listing 

exchange has the obligation to provide 

a credit event confirmation to OCC in 

order to trigger the automatic exercise. 

5. Exercise and Settlement—Chapter XV 

of the Rules and Rule 801 

CDBOs will not be subject to the 

exercise-by-exception procedures 

applicable to most other options under 

OCC’s Rules but instead will be 

automatically exercised prior to or at 

expiration if the specified criterion for 

exercise is met. The procedures for the 

automatic exercise of CDBOs, as well as 

their assignment and settlement 

(including during periods when a 

clearing member is suspended), are set 

forth in Rules 1501 through 1505 of new 

Chapter XV and in revised Rule 801(b). 

6. Special Margin Requirements—Rule 

601; Deposits in Lieu of Margin—Rule 

1506 

As in the case of CDOs, OCC will not 

initially margin CDBOs through its 

‘‘STANS’’ system in the same way that 

other options are margined. Because of 

the fixed payout feature of CDOs and 

CDBOs, further systems development is 

needed to accommodate these options 

in STANS on a portfolio basis. Until 

such development is completed, 

elements of STANS will be used to 

determine the expected liquidating 

value of each class of CDBOs and CDOs 

by extracting certain information 

regarding the default probability from 

the listed equity options on the common 

stock of the reference entity and the 

market price of the CDBOs and CDOs. 

Expected liquidating values can then be 

derived from simulated price 

movements in the stock over a range of 

values. Thus, general principles of 

STANS will be applied, but each class 

of CDBOs and CDOs will be treated as 

a separate portfolio and will not be 

included within the entire portfolio of a 

particular account. An exception to this 

will be in the case where a firm has a 

net long position in CDBO or CDO 

contracts that is not required to be 

segregated and the risk computed under 

this methodology is less than 100% of 

the premium value of the net long 

position. In such a situation, the excess 

long value will be used to cover 

requirements associated with other 

cleared contracts. This margin 

methodology will result in a more 

conservative risk estimate than if the 

contracts were fully integrated in 

STANS since offsets in the risk 

calculation between these products and 

others will not be recognized except to 

the extent of any excess long value. 

Ultimately, CDBOs will be incorporated 

into the STANS system and will be 

valued and margined on a risk basis. 

OCC does not propose to accept 

escrow deposits in lieu of clearing 

margin for CDBOs. Therefore, Rule 1506 

states that Rule 610, which otherwise 

would permit such deposits, does not 

apply to CDBOs. 

7. Acceleration of Expiration Date—Rule 

1507 

This provision permits OCC to 

accelerate the expiration date of a single 

payout CDBO when the option is 

deemed to have been automatically 

exercised on any day prior to the 

expiration date and to accelerate the 

expiration date of a multiple payout 

CDBO when the option is deemed to 

have been automatically exercised with 

respect to every reference entity 

underlying such option prior to the 

expiration date. 

III. Discussion 

Section 17A(b)(3)(F) of the Act 

requires that the rules of a clearing 

agency be designed to promote the 

prompt and accurate clearance and 

settlement of securities transactions.6

The Commission finds the proposed 

rule change to be consistent with 

Section 17A(b)(3)(F) of the Act because 

it is designed to promote the prompt 

and accurate clearance and settlement of 

transactions in, including exercises of, 

credit default basket options. The 

proposed rule change is also consistent 

with Section 17A(b)(3)(F) of the Act 

because it is designed to remove 

impediments to and perfect the 

mechanism of a national system for the 

prompt and accurate clearance and 

settlement of such transactions.7 These 

purposes are accomplished by having 

the clearance and settlement of CDBOs 

take place at OCC with OCC applying 

substantially the same rules and 

procedures to CDBOs as it applies to 

similar transactions in other cash-settled 

options. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular Section 17A of the Act and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (File No. SR–

OCC–2007–06) be and hereby is 

approved. 

For the Commission by the Division of 

Market Regulation, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–16839 Filed 8–24–07; 8:45 am] 

BILLING CODE 8010–01–P 

SMALL BUSINESS ADMINISTRATION 

Houston District Advisory Council; 

Public Federal Meeting 

Pursuant to the Federal Advisory 

Committee Act, Appendix 2 of Title 5, 

United States code, Public Law 92–463, 

notice is hereby given that the U.S. 

Small Business Administration, 

Houston District Advisory Council will 

hold a federal public meeting on 

Tuesday, September 25, 2007 starting at 

11 a.m. The meeting will be held at the 

U.S. Small Business Administration, 

Houston District Office, 8701 Gessner, 

Suite 1200, Houston, TX 77074. 

The purpose of the meeting is to 

discuss the following topics: (1) District 

Office update and goals; performance 

and rankings; (2) 2007 Mid America 

Conference; (3) SBA’s 7(a), 504, 8(a) 

programs and Patriot Express Loan 

Program; (4) Small Business Week and 

Small Business Development Center; 

and (5) SCORE updates. 

Anyone wishing to attend or to make 

a presentation must contact Alfreda 

Crawford, Business Development 

Specialist, U.S. Small Business 

Administration, Houston District Office, 

8701 Gessner, Suite 1200, Houston, TX 

77074; phone (713) 773–6555; fax (202) 

481–0150; E-mail: 

alfreda.crawford@sba.gov. 

Matthew Teague, 

Committee Management Officer. 

[FR Doc. 07–4160 Filed 8–24–07; 8:45 am] 

BILLING CODE 8025–01–M 


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